Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders.
The field of technical analysis is based on three assumptions:
1. The Market Discounts everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock’s price reflects everything that has or could affect the company – including fundamental factors. Technical analysts believe that the company’s fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.
2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.
3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time.
Technical analysis uses chart patterns to analyse market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.
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Technical analysis relies on indicators to help you make trading decisions to buy and sell. There are a number of different indicators available to help you make trading decisions. Most of the online trading companies include the common trading indicators in their trading applications. The trick is to figure out which indicators are best for your trading style and purposes. Different indicators are best suited to different types of markets.
Choose an Indicator that Suits Your Market Different indicators suit different markets. Certain indicators are best for ranging markets, other indicators suit flat markets, and others suit trending markets. It is important to choose the right types of indicators for the right types of markets. To select the right indicator for your market, you need to
know what indicators are available to begin with.
Here are some of the most common indicators that are used for Forex trading:
- Moving averages
- Bollinger Bands
- Candlestick formations
Forex Strategies Based on the Moving Averages Indicator one of the most popular trading strategies is based on the technical indicator called moving averages.
Moving averages are calculated by taking the price of currency and calculating the average price over different periods. Traders use a number of moving averages on a chart to gauge the trend in the market and to make buy and sell decisions based on where these moving averages cross over one another.